Let us start with the part that gets lost. This is not law. It was announced in the 2026-27 Budget, Treasury released a consultation paper on 8 July 2026 setting out the design, and the proposed start date is 1 July 2028. There is a long way between here and there.
That said, it is the most significant proposed change to trust taxation in decades, and if you run a business through a family trust it is worth understanding now rather than in 2028.
What is proposed
A 30 per cent minimum tax, payable by the trustee, calculated on the net income of the trust.
Beneficiaries would continue to be assessed on their share of the trust's net income under the existing Division 6 rules, but individual beneficiaries would receive a tax offset equal to their proportionate share of the minimum tax the trustee paid.
So if the trust distributes 60 per cent to one beneficiary and 40 per cent to another, each is assessed on their share and each gets an offset for the corresponding share of the minimum tax.
The practical effect for individual beneficiaries is that trust income cannot be taxed at an effective rate below 30 per cent. A distribution to an adult beneficiary on a low marginal rate no longer produces the outcome it currently does.
What is proposed to be excluded
The consultation paper indicates the minimum tax would not apply to fixed trusts, widely held trusts, complying superannuation funds, special disability trusts, deceased estates or tax-exempt charitable trusts. Primary production income is also proposed to be excluded.
Testamentary trusts have been given relief. Those established before 1 July 2028 would be excluded, provided they are established for genuine testamentary purposes and the income comes from the deceased estate's assets or from assets injected before the Budget announcement on 12 May 2026. Testamentary trusts established on or after 1 July 2028 would need to satisfy an additional requirement that they can only benefit individuals and tax-exempt entities.
There is also a proposed exclusion for certain income relating to vulnerable minors, broadly based on the categories already taxed at adult rates under Division 6AA.
The parts that are still unresolved
The consultation paper does not propose a definition of discretionary trust. It suggests starting from the existing definition in the trust loss rules, which turns on whether beneficiaries have vested and indefeasible interests, while acknowledging that this may capture more trusts than intended. Modern commercial trusts where the trustee retains powers to change entitlements or add beneficiaries, whether or not those powers are used, are specifically flagged as an open question.
Franking credits are another. The proposal is that franking credits would no longer flow through discretionary trusts to beneficiaries and would instead be applied against the trustee's liability. Whether excess credits would be refunded or carried forward is still being consulted on.
And directors of corporate trustees are proposed to be made jointly and severally liable for the minimum tax, in the same way they currently are for family trust distribution tax.
What to do about it now
Very little, and that is deliberate advice rather than a shrug.
The measure is not law. The design is not settled. Rollover relief has been announced for a three year period to allow restructuring out of discretionary trusts, and the consultation paper indicates it will be broader than the existing small business restructure rollover, extending to passive assets and trusts not carrying on a business, with no genuine restructure test.
Notably, the consultation paper does not address state and territory transfer duty, which for a trust holding land is often the largest cost of restructuring and could make the federal relief academic. That is worth watching closely.
What is worth doing is knowing what your structure actually is, who the beneficiaries are, whether there is a corporate beneficiary, and what assets sit where. Most business owners do not have that on one page, and you will need it whichever way this lands.